Bank stocks rose on Monday on expectations of more lenient oversight after the Federal Reserve's top regulator resigned to avoid a difficult legal battle with President-elect Donald Trump. rose.
But consumer advocates said the incident could undermine safeguards protecting Americans from reckless banking transactions.
Michael Barr, the Fed's deputy governor for oversight, said Monday he will step down from his role on Feb. 28, after serving in the role starting in July 2022, but will remain on the Fed's board.
Citigroup shares rose 2.5%, Bank of America rose 1.4% and Wells Fargo edged up 1.1% as big bank stocks regained some of their gains. finished.
“The risk of conflict over status could distract us from our mission,” Barr said in a statement. “I have determined that in the current environment, I can more effectively serve the American people in my role as governor.”
Why do banks need regulation?
Barr, a Democrat, has led the Fed's efforts to require banks to increase their capital as a buffer against a potential financial crisis, a requirement that would divert money from investments and impact banks' profits. There is a possibility of giving.
Barr's resignation as executive vice president clears the way for Trump to replace him with a Republican on the board who is closer to the banking industry's preferences. Brian Gardner, chief Washington policy strategist at Stifel, said in a research note that Fed Governor Michelle Bowman “appears to be a strong choice.”
Why are banks opposed to Basel III?
Gardner said the new vice chair will likely accelerate merger reviews, especially for small and medium-sized banks. He also said a proposed new global regime to tighten bank capital requirements, known as the Basel III endgame, was “dead.” Mr. Gardner said that while there may be new rules, he believes they would be “capital neutral.”
But Barr will not resign from the seven-member board, meaning Democrats will maintain a majority until early 2026, when President Trump can appoint a Republican to fill the vacancy.
“It is unlikely that much will be achieved on the deregulatory front this year, given the need to approve new regulators,” TD Cowen managing director Jarrett Seiburg said in a note to clients. ” he said.
Barr's term as the Fed's top banking official was scheduled to expire in July 2026, and his term as governor was scheduled to end in January 2032.
According to reports, President Trump has been calling for Barr to be removed from his banking job for several weeks. Reuters There are reports such as. The president can only fire a Fed director for cause, but it is unclear whether he will be able to demote Barr from his supervisory role.
Fed Chairman Jerome Powell said in a post-election news conference that Mr. Trump does not have the authority to remove himself or Mr. Barr from his role at the bank.
Mr. Barr recently sought advice from the law firm Arnold & Porter in preparation for a potential court battle, a Fed spokeswoman said.
Bartlett Naylor, a financial policy advocate at consumer group Public Citizen, criticized the events that led to Barr's resignation.
“This attack on Wall Street's honorable public servants who protect hard-working Americans and our economy from reckless banking pours ice water through the veins of financial industry oversight,” Naylor said in a statement. “Mr. Barr led the effort to establish better capital safety standards against fierce opposition from Wall Street banks.”
Tim Scott, R.S.C., the incoming chairman of the Senate Banking Committee, said in a statement that Barr's push for tighter regulation and the bank run and failure of Silicon Valley banks and related financial collapses led to Both were criticized for poor supervision. Other local banks in early 2023.
“From his supervisory failures during the spring 2023 bank failure to his disastrous Basel III endgame proposal, Michael Barr has not lived up to the responsibilities of his position,” Scott said in a statement. “We stand ready to work with President Trump to ensure responsible financial regulators are at the helm.”
Contributed by: Reuters
